Friday, October 30, 2009

On October 29, a group of young people filed a formal protest with a Minsk district prosecutor against the brutal breaking up by the riot police of a peaceful protest in the Belarus capital a week earlier.

Opposition activists are well aware of the fact that their protests against police violence will be turned down, but such formal protests also require the police to send a formal reply. On previous occasions the prosecutors’ responses were similar. Still, the opposition reasonably seeks to keep all these illegalities on the record.

Brutal police beatings and arrests of any protesters have long become a fixture of political life in Belarus. Only within the last five weeks, the riot police violently broke up three peaceful opposition rallies.

Powerful, well-trained policemen knock down protesters, shove their faces into the tarmac, beat them with clubs and heavy boots—and then throw them into huge armored trucks - the highest technological achievement of Alexander Lukashenko’s 15 year-old dictatorial rule.

I saw those trucks while covering Belarus’ “presidential election”---they are specious enough for the cops to push several dozen people in, and wield clubs to keep beating them on the way to jail. By the time they arrive, the blooded prisoners usually cannot stand on their feet.

This is followed by detentions—and more beatings.

Young protesters whom I met in Belarus in recent years, account for more days spent in jail between them, than for the number of years they have lived. Each has a broken head, or a damaged kidney, or broken ribs as mementos of senseless and vicious police brutality, as seeking democracy is a criminal offense in Lukashenko’s Belarus.

Once a Belarusian student acquires a police record, he or she is expelled from school. As protests against the dictatorship attract the best and the brightest, the most promising generations in Belarus now risk losing their education, while the state risks finding itself out on the limb. What future does any country have, if it denies education to its young?

However, the kids don’t feel they miss much. “They mostly teach Lukashenko’s state ideology at official schools these days,” they laughed in response to my questions. “In jails, we are getting the best of the real thing.” Indeed, they share jail cells with Belarus’ top intellectuals, professors, scholars and artists, who read them lectures they never had at school. “I lectured them on Freud and the arts,” the prominent Belarus documentary cinema director Yuri Khashchevatsky once explained to me, after he had served his ten days in jail with young people for taking part in a street protest action.

This is reminiscent of what we all read during our childhoods about 19th century oppression in East European monarchies where the best and the brightest obtained an education in jail rather than at school. Reproducing this pattern in the 21st century doesn’t bode well for Belarus.

Thursday, October 29, 2009

The IMF ended its fact-finding mission to Ukraine on 26 October. The organization’s representatives left Ukraine without disclosing whether they would recommend the approval or delay of the next tranche of Ukraine’s stabilization loan. Shortly after, Tim Ash, an emerging market analyst at the Royal Bank of Scotland, suggested that the IMF cools on Ukraine as politics heats up and that the dispersal of the $3.4 billion loan in the near future seems unlikely. "Even with the IMF in very generous mode at present, it is difficult to see the Fund lending into an election campaign," he said. "The most likely outcome would be for the Fund to delay disbursement, perhaps even awaiting the outcome of the elections."

This is particularly true since certain suggested IMF policies and reforms have become hostage to Ukraine’s newly opened election campaign. The government has not raised household gas rates as agreed, in order to help balance state gas company Naftohaz’s books, and the parliament recently voted a state pension and wage increase that is unfundable in current circumstances.

While suggesting that the economic situation in Ukraine “is stabilizing,” IMF representatives in Ukraine specifically mentioned the wage increase as a potential deal-breaker. They urged President Viktor Yushchenko to veto the legislation.

As noted in a previous blog here, Prime Minister Yulia Tymoshenko – trying desperately to save the IMF funding – called the wage increase “an atom bomb under the finances of the country” shortly after it was passed. She asked the President to veto it. He has not done so – at least not yet.

Given Ukraine’s deep economic crisis and almost catastrophic decrease in budget revenues this year, allowing the increases to remain could be one of the most irresponsible actions of Yushchenko’s presidency. Moreover, since he did not propose the wage increase, and since his poll ratings sit under 5 percent, it seems unlikely this increase will boost his support ahead of the 17 January election.

On the other hand, it just may decrease support for his bitter rival, Prime Minister Tymoshenko, which is perhaps the point.

Election Fast Facts

- The Central Election Commission registered a slew of presidential candidates this week. These candidates include Party of Regions/opposition leader Viktor Yanukovych, Parliamentary Speaker Volodymyr Lytvyn, former Defense Minister Anatoliy Hrytsenko, former Central Bank Chair and 2004 Yanukovych campaign manager (through the first round) Serhiy Tyhypko, former parliamentary speaker Arseniy Yatsenyuk, former deputy head of the Party of Regions Iryna Bohoslovska, and President Viktor Yushchenko. The CEC is examining the papers of dozens of other potential candidates, including Prime Minister Tymoshenko. Only Yanukovych, Tymoshenko, Yushchenko and Yatsenyuk are expected to have any major effect on the race.

- Two new conflicting polls were released this week. The first by TNS Ukraine showed Yulia Tymoshenko making up almost eight points on the lead held by opposition leader Viktor Yanukovych. The former Prime Minister is said to lead the current Prime Minister by 21.17% to 17.92%. Yatsenyuk is third with 6.5%.

The second poll by the Research and Branding group found Yanukovych maintaining his significant lead over Tymoshenko (31%-18.4%). Yatsenyuk is listed at 9.6%.

Because of the historical problems with methodology and loyalties within Ukrainian polling firms, it is difficult to know which poll is closer to reality. The almost sure bet, though, is that Yanukovych and Tymoshenko will square off against each other in the second round of the election.

Wednesday, October 28, 2009

On October 26 the Russian daily Kommersant reported that Inter ROA UES, Russia’s primary producer of electricity, whose Board of Directors is headed by deputy prime minister Igor Sechin, decided to replace Gazprom as the gas supplier for its most important energy generating plants with Novatek, one of the few independent Russian gas producing companies.

The co-owner of Novatek just happens to be Russian businessman Gennadiy Timchenko. As a result of this agreement, Gazprom could lose $650 million. (Kommersant, October 26, 2009)

The legend surrounding Gennadiy Nikolayevich Timchenko has been regurgitated in both the Russian and Western media for nearly a decade. He appears to be a man who appeared out of nowhere and rapidly rose to became one of three co-owners of Gunvor, a Swiss-based and Finnish registered oil trading company (only two owners are known by name, the third owners (according to Gunvor they are unnamed company managers) prefer to remain anonymous), which managed to garner a large niche of the Russian oil trading business.

Timchenko, who has Finnish citizenship, is reputed to be close to Russian Prime Minister Vladimir Putin and the latter's closest associates including Igor Sechin, the deputy Prime Minister for energy and the head of not only the Board of Directors of ROA UES, but also of Russia’s largest state-owned oil company Rosneft.

An official document released by the Saint Petersburg City Council on 23 March 1992, which in the possession of the Jamestown Foundation, states that Vladimir Putin, the then head of the foreign trade department of the city council, signed a contract with a Russian company, “Kirishnefteorgsintez”, where Gennadiy Timchenko, the future partner of Gunvor,was employed, to supply 100,000 tons of diesel fuel as barter for the purchase of food goods for the city of St. Petersburg from Norwegian and other non-Russian companies. The St. Petersburg City Council document stated that the contract was illegal and that Putin, along with his co-conspirator, A.G. Anikin, were guilty of defrauding the city council of millions of dollars.

Nobody was prosecuted for this alleged fraudulent agreement and the case soon vanished.

Timchenko's career seemed to dovetail with that of Vladimir Putin who came to champion Russia’s control of ports, pipelines and other infrastructure. In 2008 Putin visited the site of a massive port development near St. Petersburg, where he trumpeted the importance of exporting Russian oil from Russian ports. The project's centerpiece is an oil terminal partly financed by Mr. Timchenko.

A Gunvor spokesman said its port investment is currently "very small" but may become "very substantial."

During the highly controversial Yukos bankruptcy proceedings in 2004, which, according to Mikhail Khodorkovsky, the former head of Yukos, were orchestrated by Sechin, Timchenko was suspected of being involved in creating a dummy company, Baikal Finance, to take control of Yukos’s most important asset Yuganskneftegas. Timchenko has denied these charges and they have never been proven.

The “Baikal Finance Group” gave its registered office as the address 12b Novotorzhskaya street in the Russian city of Tver. The same address was used by some 150 legal entities as their registered place of business. Journalists later discovered that the building only housed the seedy “London” cafeteria and bar.

“Baikal Finance” bought Yuganskneftegaz” for the rock-bottom price of $9 billion and promptly sold it to Rosneft, whose CEO was Sergey Bogdanchikov and Igor Sechin headed the Board of Directors.

When asked about this highly opaque deal, Putin confidently replied on December 21, 2004 at a joint press conference with German Chancellor Gerhard Schroder present, that he knew the people behind “Baikal Finance”, and that they have “worked for years in the energy industry” and therefore all was well.

In January 2009 Gunvor filed a suit against “The Economist” charging the publication with defamation in an article published in November 2008 entitled “Grease my palm: bribery and corruption have become endemic.”

"In a section of our special report on Russia entitled “Grease my palm” (November 29th 2008) we referred to Gunvor and its cofounder, Gennady Timchenko. We are happy to make it clear that when we referred to the “new corruption” in today’s Russia, we did not intend to suggest that either Gunvor or Mr Timchenko obtained their Russian oil business as a result of payment by them of bribes or like corrupt inducements. Rosneft sells only 30-40% of its oil through Gunvor rather than the “bulk” of Rosneft’s oil (as we described it). We accept Gunvor’s assurances that neither Vladimir Putin nor other senior Russian political figures have any ownership interest in Gunvor. We regret if any contrary impression was given."

The Timchenko/Sechin/Putin energy empire seems to be expanding at a rapid pace. Gunvor, according to Russian media reports, is looking to enter the natural gas business, while Sechin, a fierce enemy of Gazprom’s CEO Alexei Miller according to Moscow insiders, appears to be doing everything in his power to discredit the Gazprom management team.

Who will benefit from this sub-rosa dogfight is hard to say, but one potential victor could well be Dmitri Medvedev and his team who are anxious to obtain some measure of control over Gazprom and pry it away from its current overlords.

Tuesday, October 27, 2009

Irakli Alasania, a moderate politician commonly called by his first name within the Georgian political establishment a-la Mikheil Saakashvili who became known as Misha – a peculiar tradition of Georgia’s adolescent political culture – faithfully served his country and president in various capacities before joining the opposition in late 2008.

Before and during the war that Russia waged against pro-Western Georgia in August 2008 Alasania had been a powerful voice of Georgia in the United Nations, defending his country’s cause by standing up to Russia’s diplomatic maneuvers. Although his duty was to simply deliver the position of the Georgian government and President Saakashvili himself, even his current opponents in Georgia’s governing circles agree that Alasania’s communication abilities, excellent diplomatic skills and personal charm played a significant role in Tbilisi’s successful attempts to break through diplomatic sieges that Moscow incessantly orchestrated around Georgia.

With Russian troops just a few miles from Tbilisi during the acme of Moscow’s military aggression on August 11, 2008, the entire country watched as Ambassador Alasania appealed to the UN Security Council and accused Russia of wanting “to erase Georgian statehood from the surface of the earth.”

Nonetheless, few were surprised when just a few months after the end of open hostilities between Russia and Georgia, on December 4th, Alasania resigned as Georgia’s permanent representative to the UN.

This move could have been easily predicted given the rumors broadcast by Georgian media about a irreparable schism between Alasania and Georgia’s ruling United National Movement Party on one hand and the growing strength of the opposition in the aftermath of Georgia’s post-war losses on the other.

During his first press conference after resignation, Alasania himself tried to explain the reason behind his move, saying that “the fundamental differences between his and President Saakashvili’s views on Georgia’s internal and external development, including issues related to conflict resolution,” contributed to his decision.

Soon afterwards Alasania established his own political party, Our Georgia-Free Democrats, and entered into the Alliance for Georgia, a consensus-based political amalgamation which also includes the Republican and the New Rights Parties.

But there was one significant event before the creation of a new political organization when in February 2009 the Alliance of Georgia’s two other leaders Davit Usupashvili and Davit Gamkrelidze named Alasania as their presidential candidate even though the next presidential elections were due in 2013.

The events that unfolded in April-June showed the reason behind this rash decision. Mass rallies that the radical opposition organized for several months were meant to force President Saakashvili to resign, and naming Alasania as a presidential candidate well in advance of other possible nominees could have given him some advantage both in terms of time and space.

As it turned out, the radical opposition’s mass functions failed to achieve their coveted goal and President Saakashvili survived the roaring crowds and tents in the heart of Tbilisi, in front of the Parliament building on Rustaveli Avenue, occasional gatherings on other plazas, at the National Stadium and the Holy Trinity Cathedral Church – the culminating moment when the radical opposition hoped that the nationally respected Patriarch Ilia II, head of the Georgian Church, would come up with an appeal to President Saakashvili, directly or indirectly requesting his resignation for the sake of Georgia’s present and future. He did not do so.

During the rallies, Alasania mostly stood in the back and unconvincingly advocated moderation and a need for dialogue with the government.

But the ultimate moment of truth for Alasania and many other opposition leaders in Georgia came when in June U.S. Vice President Joseph Biden visited Tbilisi at the heat of yet another wave of Russo-Georgian confrontation and, among other things, called for calm and political dialogue and unequivocally denounced any attempts to use extralegal methods to oust the government. Even more importantly, Biden highly praised the 2003 Rose revolution whose acclaimed leader was Saakashvili.

Addressing the Georgian Parliament, Biden said the Rose revolution “started a new waive of freedom that the whole world heard” (http://www.parliament.ge/, June 23, 2009). The strong support for Georgia’s current leadership by the new U.S. Administration and for a timely and a duly processed constitutional succession in Georgia became more than obvious.

But Biden’s visit apparently influenced not only the opposition. Saakashvili’s decision to organize local elections six months ahead of time, on May 30, 2010, and to allow for direct election of mayors in big cities, including the capital Tbilisi, should be put in proper political context and seen as motivated by both domestic and international considerations.

On September 22nd the Alliance for Georgia once again nominated Alasania, but this time for Tbilisi Mayor. At the press conference dedicated to the nomination Alasania said that his political alliance wanted “to carry out fundamental changes and come to power in local elections.” Some influential figures in the radical opposition voiced criticism about Alasania’s decision, noting that a lack of political confidence in the country and the poor election code would not guarantee equal opportunity for all political parties and fair competition.

The mercurial leader of Georgia’s Labor Party and long-time presidential hopeful Shalva Natelashvili who strongly opposes Saakashvili and advocates Georgia’s neutrality instead of NATO membership has long called Alasania Misha-2, claiming that “Alasania is Washington’s new project, being groomed to replace Saakashvili.” Other radicals, namely, ex-Speaker of the Parliament Nino Burjanadze and ex-Prime minister Zurab Nogaideli as well as Levan Gachechiladze, who came in second in the last presidential election in January 2008, do not show a particular liking toward Alasania either.

Alasania’s political alliance includes at least one entity, the New Rights Party, that, like Natelashvili, was against the Rose revolution and, the other one, the Republican Party, has long distanced itself from Saakashvili’s government and has in its ranks several high-profile personas, such as the former security chief of Georgia Irakli Batiashvili, who also fiercely opposed the Rose revolution.

Many analysts believe that Alasania would be better-off without some notorious personalities in his Alliance for Georgia, namely those associated not only with Shevardnadze but also with radicalism, corruption and cronyism. Others argue that Alasania would only benefit if he duly assessed the importance of the Rose revolution and, instead of attempting to start his own new agenda for Georgia, built trust with Saakashvili’s United National Movement Party in order to achieve consensus similar to that practiced in Western democracies between the governing and opposition entities.

Notwithstanding some figures in his entourage, 35-year-old Alasania is widely considered as a pro-Western moderate politician who arguably can find his niche in Georgia’s political spectrum which usually prides itself with radicalism and antagonism to political compromise. It is usually considered normal for a Western politician to be first nominated for the mayor and then for president. In Georgia, at least for now, it is the other way around. Time will tell if Irakli Alasania is capable of a proper balance between his principles and political expediency.

Monday, October 26, 2009

Is Russian Prime Minister Vladimir Putin willing to give up Gazprom’s monopoly on gas exports in return for granting Gazprom higher domestic gas prices? The gas monopoly has been lobbying to increase the domestic gas price for years – presently set at $58 for 1,000 cubic meters (tcm) – to a more realistic (and profitable) one of close to $125/tcm. The government, however, has resisted such a dramatic increase fearing the backlash it might create among voters in future elections.

The pressure on the government is coming from Russian oil companies who feel cheated by the fact that Gazprom often refuses to buy their associated petroleum gas at a fair price in order to sell it to European customers at 4-5 times the purchase price.

According to the Russian daily Vedomosti, “It is not a secret that there are times when Gazprom refuses to allow gas (from independent producers) into its pipelines, even when consumers are waiting for gas, a source in Rosneft stated. And while the official producers of gas refuse to discuss this, Lukoil has a strategic relationship with Gazprom with which it is highly satisfied."

Turkmenistan

British gas auditors Gaffney, Cline &Associates confirmed their earlier audit on the size of Turkmenistan’s gas reserves. According to the British firm, the country has proven reserves of 14 trillion cubic meters of gas.

The Russian daily Vedomosti reported that Turkmenistan will forbid Gazprom from re-exporting Turkmen gas to European customers. This condition might be incorporated into the new gas sales contract being negotiated between Gazprom and Turkmengas. The daily comments that this could well be a tactic by the Turkmen side to obtain a “European price” for its gas.

The newspaper Vremya Novostei speculates that such a condition will deprive Gazprom of any logical reason for purchasing gas from Turkmenistan.

Milov on South Stream

Vladimir Milov, the former deputy head of the Ministry of Energy of Russia, told the Ukrainian UNIAN press agency that it was unlikely that South Stream would ever be built due to its excessive cost and lack of need.

“Forget about South Stream and Nord Stream, South Stream is only a scarecrow to scare the Europeans and the Ukrainians. It simply will never come to be since there is no need for it… There is no logical reason to pay $60 billion dollars to build it in order to bypass Ukraine.”

Friday, October 23, 2009

The decade of Putin’s rule was based on projecting hydrocarbon power and demonstrating military power. If the former is quite realistic, the latter is mostly illusory in regard to the West where Russia's Armed Forces are often regarded as a mob.

Still, it remains quite menacing to former Soviet republics. Among other things, Putin’s invasion of Georgia’s was meant as a signal to other neighbors in Russia’s “near abroad” to behave.

The Putinists in their hubris have been missing the fact that good relations with ones neighbors is what make borders really secure, not intimidation and arm twisting, tactics that make neighbors forever suspicious. Just look how Russia has handled Ukraine or Belarus:

In the cold winter of 20005-2006, the Russian-Ukrainian gas war seriously threatened natural gas supplies to Europe. Russia demanded a steep price raise. Ukraine responded by diverting transit gas. It was very much a case of the current commercialization of Russia’s polices—the mix of financial and political interests, with the former often taking the upper hand.

Moscow still sees Ukraine’s 2004 Orange Revolution as an act of disobedience. Moscow is unhappy with Ukraine’s demand that Russia withdraws her Black Sea Fleet from the Crimea by 2017. Now, Russia is fomenting trouble in Russian-speaking Ukrainian regions, primarily in the Crimea.

Since 1994, the tin-pot dictatorial regime of Belarus President Alexander Lukashenko has been shored up by cheap supplies of Russian natural gas and cheap crude. Lukashenko then refined and sold petroleum products to Western Europe at high rates.

Formally, Russia and Belarus proclaimed a joint state. However, Moscow expected Belarus to enter the Russian Federation as a province, while Lukashenko insisted on his independence within the joint state. Moscow has been long vexed with Lukashenko’s reluctance to accept the terms of the anschluss, including the Russian ruble as the single currency.

Putin never forgave Lukashenko for his aspirations to rule the Kremlin. And again, the commercialization of Russia’s foreign policies stepped in: on the eve of 2007 , Russia steeply raised prices for gas and oil. Lukashenko unsuccessfully tried to fight back by leveling new transit duties and diverting oil transits earmarked to Europe.

Ever since economic hostilities have been on and off, but the Belarus economy will not last long without supplies from Russia. Moscow expects Lukashenko to give in – and if he refuses - try to have him replaced with someone more compliant.

Heretofore, Putin’s supporters have been quite gung-ho on his policies of intimidating “the far abroad” with what Moscow wits nickname Russia’s “pipe-line troops,” and the near abroad with obsolete but heavy armor. It made them feel like a superpower once again.

However, on October 22, Konstantin Kosachev, Chair of the Duma’s Foreign Relations Committee, wrote in the government Rossiyskaya Gazeta: “We have been preferring…demonstrations of raw power….We now have more or less normal relations only with Kazakhstan and China…It’s unbecoming to a new democratic Russia to build her relationships with the world on the ‘military-hydrocarbon’ foundation’ only.”

The question is why the ever loyal Kosachev permits himself to make such statements. Maybe, because the best-informed part of the Russian establishment is worried over the prospects of Putin’s continuous rule. Growing oil prices only add to their concerns: a new windfall means that Putin will have enough money to bury urgently needed reforms again which spells an eventual collapse not unlike the case with the Soviet Union.

And the 64.000 dollars question is: what does a “new democratic Russia” have to offer after Putin’s decade, besides “the military-hydrocarbon” approach?

Thursday, October 22, 2009

Ukraine President Viktor Yushchenko has a big decision to make. What will he do about legislation that raises the minimum wage beginning in January 2010? The legislation was approved by parliament on 20 October and now sits on the president’s desk waiting for his decision. Will he sign it or veto it?

The wage increase (which also will affect pensions) was vehemently opposed by Prime Minister Yulia Tymoshenko, who referred to it as “an atom bomb under the finances of the country.” The International Monetary Fund also expressed concern.

An IMF mission currently is in Ukraine to assess the country’s progress on promised reforms in return for its $16.4 billion loan and to determine if it will release the next loan tranche. In a meeting with Parliamentary Speaker Volodymyr Lytvyn, IMF representatives questioned Ukraine’s ability to control its deficit while under the pressure of higher social payments. The country has experienced severed industrial output contraction this year and seen its currency devalue by over 25%.

However, the vote came just one day after the official start of the presidential election campaign. It provides its backers – in particular presidential candidate Viktor Yanukovych – a useful talking point against Tymoshenko, who is his chief opponent in the election.

Can you imagine the advertisements? “The Prime Minister won’t raise your minimum wage, but I will!” The legislation, of course, doesn’t explain where the country will find the money.

But what of President Yushchenko, who is running for re-election. For years, he has criticized Tymoshenko because of what he terms her “populist” nature. He has repeatedly called on the government to rein in spending, and just last month, suggested that the country was not meeting IMF guidelines because its policies were too populist.

In January of this year, he went so far as to call Tymoshenko’s budget a document built on “lies.” He said, “On behalf of the entire country, I demand that the government and parliament immediately prepare an honest budget, where expenditures correspond to the capabilities of the economy.”

Now, Tymoshenko is calling on Yushchenko to veto the minimum wage legislation, which passed with 254 votes (226 needed). If the legislation is vetoed, it is unlikely its backers could muster the 300 votes necessary to override the President’s veto.

But if he signs the legislation into law, the president has an opportunity to isolate Tymoshenko, making her the only presidential candidate to speak against providing higher wages to voters. The action would not be unprecedented. During his first campaign in 2004, Yushchenko promised higher pensions; they were raised during the first year of his administration.

So which Yushchenko will we see in the next few days – the fiscally conservative president who demands controlled spending, or the candidate who offers assistance to voters?

Wednesday, October 21, 2009

As the prolonged debate in the West continues over whether Russian President Dmitri Medvedev is his own man or Vladimir Putin’s loyal comrade in arms - temporarily filling-in for the former president- new developments in Russia are pouring oil on the potentially fiery dispute.

In April 2009 Medvedev’s administration first announced that presidential offices would be opened in all Russian regions in order to facilitate communications with local residents and handle their complaints. The project was delayed and on October 16, a few days after the highly controversial victory of Putin’s United Russia Party in regional elections, the newspaper Vedomosti reported that new instructions had been issued to hasten their opening.

Once this takes place there will, in all likelihood, be two such offices in every major city in Russia – one under the control of Prime Minister Vladimir Putin and United Russia and one loyal to President Medvedev.

Putin’s offices were first established in 2008 and are staffed by local United Russia activists and community leaders. However, according to Medvedev’s press secretary Natalia Tymakova, Putin’s offices function more like public organizations while Medvedev’s will help facilitate the work of officials in dealing with requests from citizens. Will they compete for the hearts and minds of local residents is a possibility not being discounted by Russian observers.

If the coming battle is indeed for the minds of the average Russian citizen, then the Medvedev camp is playing a catch-up game with Putin’s well organized and handsomely financed United Russia.

On October 19, the Kremlin’s website announced that: “This year, Dmitry Medvedev took the initiative of changing the way the Presidential Address is drafted. The publication of his article Go Russia! was an invitation for the whole of Russian society to take part in the discussion. More than 13,000 comments and proposals have come in from individuals, political parties and public organizations in the five weeks since the article was published.”

What this wording might have meant was that during the Putin presidency, the “whole of Russian society” did not partake in the discussion and it was high time to democratize the process.

Medvedev will apparently take into account comments from the Russian narod (nation) about the direction the country is taking and incorporate their views into his “State of the Nation” speech which could be delivered in early November.

The Kremlin however, is playing it close to the vest and has not announced the date of Medvedev’s address, which will be delivered in the Kremlin to Cabinet members, federal lawmakers, heads of all courts, top prosecutors, religious leaders and heads of major public groups.

However, the major issue facing both men today is the uproar in Russia over the results of regional elections where United Russia has been widely accused of falsifying the vote. Medvedev condoned the results and initially refused to meet with the leaders of Russia’s three “opposition” parties who walked out of the State Duma in protest of results. He later changed his mind but has not yet set a date for the meeting.

How far Medvedev is willing to go in this battle over free elections is uncertain. If he is Putin’s policy slave, he has little room to maneuver and will not be in any position to set any election standards.

Medvedev’s remarks to the leadership of the United Russia Party on October 12 are hardly encouraging: “I think the elections were well-organized and show that the election campaign complied with all the legal requirements. The preliminary results are already known. As far as I know, United Russia has obtained the majority everywhere. I congratulate you, as the party’s leader, on this victory.”

Is Medvedev trying to win United Russia over to his alleged cause of democratizing Russia or is he paying homage to Putin in a game plan which few in the West are able to comprehend?

Tuesday, October 20, 2009

U.S Assistant Secretary of Defense for International Security Affairs Alexander Vershbow arrived in Tbilisi on October 19, for talks with high-level Georgian officials. According to the Georgian media, shortly after his arrival he met with President Mikhail Saakashvili and Secretary of the National Security Council of Georgia Eka Tkeshelashvili. His plans included meetings with Georgia’s defense and foreign ministers to discuss specifics of U.S.-Georgian relations.

Early on October 20 Vershbow talked with Georgian political experts behind closed doors and, according to one of the participants of the meeting, political commentator Ghia Nodia, the themes of discussion were Georgia’s external security, relations with Russia, and democratic development.

The formal purpose of Vershbow’s visit, according to Georgia’s foreign ministry, is “to hold a working meeting within the framework of the U.S.-Georgia Charter on Strategic Partnership.”

Signed in January 2009, the Charter is considered by the Georgian leadership as the major pillar of its relations with the United States government. Expectations in Tbilisi are still high especially when it comes to cooperation on security and defense issues, but at the same time there is more realization by the Georgian public now that to expect too much from Washington would be self-deluding. Issues of Georgia’s crippled sovereignty and territorial integrity cannot be solved anytime soon and this gives the already openly pro-Russian forces in Georgia’s political spectrum a bigger say in shaping the country’s public opinion.

Part of the problem is the speed with which Russia outmaneuvered the United States. With Moscow rapidly turning the occupied Georgian territories of Abkhazia and Tskhinvali into its military outposts, many Georgian analysts believe that Washington talks more about the need to stabilize the conditions on the ground and retain the fragile peace in the region than to end the Russian occupation and restore Georgia’s territorial integrity.

But the status-quo is not only disadvantageous to the Georgians, it is rapidly changing from military occupation to full annexation of the Georgian lands. According to some Georgian sources, Russians are now building 20 military garrisons in the Tskhinvali region. Given the size of that territory (1,506 sq mi), the entire region may soon become a high-density military base.

Since the EU monitors stationed in Georgia from the time open hostilities between Russia and Georgia ended last year are not allowed to enter the region under Russian occupation, it is extremely difficult to independently verify both the speed and the scope of the Russian military buildup.

Military garrisons in addition to “Russian border settlements,” are reportedly being built along the entire perimeter of the occupied zone, separating it from the rest of Georgia with heavy fortifications. Unlike military garrisons which are constructed by Russia’s defense ministry, the building of the so-called border settlements is overseen by the Russian security service, the FSB, which traditionally deals with Russia’s borders.

Along with displaying hard power, Russia continues its traditional “passportization policy” as a means to “legitimize” its wartime territorial acquisitions. In line with a new regulation, local so-called Abkhaz passports distributed to the residents living in Abkhazia will soon state that the owner is a Russian citizen.

As the volatile status-quo rapidly changes from occupation of the two Georgian territories to their de-facto annexation by the Russian Federation, many Georgians fear the United States is not using the tools in its arsenal to stop Russia and reverse the situation.

Monday, October 19, 2009

The Ukrainian military has apparently become a victim of the country’s fierce political infighting and might well be on its way to disintegration. For five months Ukraine has been without a Defense Minister, an unprecedented situation in the country’s history.

In June 2009, the Defense Minister, Yuriy Yekhanurov, was forced out of office after charges of illegal land sales were leveled against him by Prime Minister Yulia Tymoshenko. These charges were upheld by the powerful opposition Party of the Regions which at the time was in an erstwhile coalition with Tymoshenko.

Ukrainian President Viktor Yushchenko disputed the accusations against Yekhanurov and stated: “I can see no signs of corruption or any wrongdoing which could lead to the minister’s resignation.” Yushchenko praised the ministry’s 3-year track record as stable, given the meager funding the ministry gets from the cabinet.

To make matters worse, on October 5, the Chief of the General Staff, General Serhiy Kyrychenko, resigned his post due to “health reasons.” The media, however, reported that his resignation was motivated by the chronic underfunding of the Ukrainian military by the government.

Defense spending in Ukraine was reduced considerably this year, and further cuts are expected in 2010. If this trend continues, some believe that in the next two or three years, the Ukrainian army might lose its combat capability.

The crisis in the Ukrainian armed forces, according to Ukrainian analysts, is mainly due to the fact that most members of the Ukrainian leadership are not interested in defense issues, and PM Tymoshenko has been pursuing a policy in which welfare spending is her priority.

The prospect of membership in NATO once provided Ukraine with an impulse for military reform which the government saw as a platform of co-operation with the West, but this has now become more distant as prospects for NATO membership have almost vanished.

Ukraine’s largely conscript armed forces consist of 191,000 military personnel and 43,000 civilian employees. They are generally considered to be underfunded and lacking in training.

According to a 2007 study by Marybeth Peterson Ulrich of the Strategic Studies Institute, U.S. Army War College, “The Ukrainian armed forces have been on a starvation diet, recently receiving only 1.3 percent of gross domestic product (GDP). If Ukraine were in NATO, it would rank third among NATO’s 26 countries in terms of size, but 127th out of 150 countries worldwide in expenditure per serviceman.”

Former Defense Minister Yekhanurov once noted that “The Ministry of Defense has a very long way to go in the area of defense, because a systematic transformation of the Ukrainian Armed Forces requires enormous efforts, clear coherence in actions, and heavy daily routine.”

The Armed Forces of Ukraine have been struggling with insufficient financing for many years, which has been the main impediment to reform. The current economic crisis has resulted in drastic cuts in the defense budget, and left the army in a state of de facto financial collapse. In 2005–2008, the proportion of defense spending decreased from 1.3% of GDP to 0.99% (the 2005 armed forces reform program stated that Ukraine would allocate 2% of GDP to defense purposes).

This year, the Defense Ministry’s budget was altered, according to critics of the Tymoshenko government, in order to conceal decreased military spending. They claim that the Tymoshenko government appears to have been treating the budget as an election campaign tool, and has established welfare spending as a priority when facing finance shortages.

The proportion of the so-called special fund in the budget, which consists of the Defense Ministry’s revenue from the sale of the army’s fixed assets, has increased from over 10% of total spending in 2000–2008 to nearly 30% in 2009. The real amounts obtained from such sales have always been lower than those foreseen in Budget legislation.

According to the Polish East-West Analytical Newsletter (no. 35, October 14, 2009) “Ever more serious shortages in material (including the increasing amount of sales of the Ukrainian armies most valuable equipment) and the loss of personnel (young officers trained to NATO standards are leaving the services), combined with the drastic reduction of practical test-ground training, means that the new structure of the Ukrainian armed forces, which were trained in the middle of this decade will become ineffective. This situation will not only delay the completion of armed forces reform, but also pose a real risk that Ukraine’s military potential will be diminished. This in turn may undermine Ukraine’s position as a partner in its military co-operation with the West, and weaken its standing in relations with Russia.“

Friday, October 16, 2009

In 2004, Russian President Vladimir Putin scrapped the election of regional governors by popular vote and introduced a system which was painfully reminiscent of the Soviet past i.e. - the Communist Party’s Central Committee would “recommend” Comrade X as a Region’s Party Leader. The Regional Party Committee then unanimously voted to elect Comrade X their First Secretary.

That was Soviet democracy, best summed up in a popular joke of that era: “There is an opinion…” intoned the First Secretary; “There are no objections,” replied the Committee.

Many liberal tears, both in the East and the West, were shed over Russian President Dmitri Medvedev’s December 2008 bill to allow the parties who win regional elections to nominate governors to be elected by regional legislatures.

The Duma, where three parties are represented in addition to the ruling United Russia, rubber stamped Medvedev’s bill into law obligingly. In return they expected their compliance to bring them at least one or two regional governorships, the offices of which are fat in monetary and political payoffs. No such luck.

According to official results, Putin's United Russia party carried last Sunday’s regional and local elections in a landslide victory. According to massive evidence, the party carried the elections by blatant and open fraud. (Kommersant, October 15).

The enraged Communist Party, Kremlin’s old stooge Vladimir Zhirinovsky’s Liberal –Democratic Party and Putin’s loyalist-cum-opposition to the Kremlin Just Russia, staged a demonstrative walkout of the Duma session to record their protest. They also demanded a meeting with Medvedev.

The closet liberal President, however, chose to snub them. His spokesperson Natalya Timakova told the press that Medvedev's views had not changed from Monday when he hailed United Russia's victory as showing the party had a "legal and moral right" to run the regions.

The “rebellious” parties quickly chose to return to the parliament’s floor. So what else is new? The way it has been handled over previous decades, “opposition” parties’ leaders will bargain their private pounds of flesh. Medvedev will condescend to meet with them at some point—and sugar-coat the issues publicly by allowing them to contest street janitors jobs, or other vacancies left by the Putin party.

So, what is the punch line here? The Russian President can assuredly get away with any political promise. Why shouldn’t he promise his loyal “opposition parties” to nominate their governors should they win? The point is he knows he won’t let them win---so why the hell not? Liberals, both domestic and foreign, will be placated, though.

As for the rest of the country, Soviet humor applies again: “Do you know when the precedent of individual free choice in elections was set?”

“No, but do tell!”

“Why, it’s all in the Bible! God brought Eve to Adam and commanded: ‘Choose!’”

Thursday, October 15, 2009

On October 19, Ukraine’s presidential election campaign will officially begin, in advance of the first round of elections on January 17.

The campaign is set to take place during Ukraine’s worst economic crisis since the mid-1990s, amid an atmosphere of cynicism and increasing apathy. Nevertheless, a recent poll suggests that a majority of Ukrainians plan to vote in the election.

The Kyiv-based Research and Branding Group found 60% of those polled said they were likely to vote, while 23% may vote. In 2004, the Central Election Commission recorded an approximate 75% turnout in the first-round of the election. However, given questions raised by monitors about the entire election process in 2004, it is likely that this figure is inflated.

The bad news for the current leadership is that they continue to trail in the polls behind nominal opposition leader Viktor Yanukovych. Mr. Yanukovych will forever be known as the man who was named president during the 2004 fraudulent election, but saw his “victory” overturned by massive street protests and the country’s Supreme Court. There is every possibility that he could also become known as Ukraine’s next president.

This month’s Research and Branding poll gives Yanukovych 30.2% support, with Prime Minister Yulia Tymoshenko garnering 18.5% and upstart Arseniy Yantsenyuk earning 8.9%. President Viktor Yushchenko barely rates on the chart. The President - blamed for not fulfilling most reforms demanded during the 2004 protests that led to his election – is supported by just 3.1%.

The poll shows a slight lengthening of Yanukovych’s lead over Tymoshenko. In an August poll by the same company, Yanukovych was supported by 26% of those asked, while Tymoshenko earned 16.5%. Yatsenyuk at that time could count on 12.5%.

Yanukovych appears to have benefited from the continuing economic crisis, a number of unproven corruption charges from opponents against Tymoshenko, and Yanukovych’s loud but financially untenable demands to raise pensions and minimum wages.

In response, Tymoshenko, who is known as a highly effective personal campaigner, is pushing her Bloc of Yulia Tymoshenko hard, with her most important allies focusing on the election issue. It is possible that she is spurred by the knowledge that her bloc is dangerously close to splintering, held loosely together only by her personal power and prestige. The Russia-tilting ProUA.com recently reported a back-door conversation with a Party of Regions (Yanukovych) deputy, suggesting that if Tymoshenko loses the presidency, they have assurances of the defection of a large number of her current allies.

All is not rosy for Yanukovych, however. ProUA also reported that support for him personally – and of more importance, financially – is weak within his own party. He also is an inferior campaigner to Tymoshenko, although he has improved in recent years. And there is trepidation within Yanukovych's Party of Regions over past polling numbers for Tymoshenko that proved to be up to 10 points less than actual results.

The biggest loser since August clearly is Arseniy Yatsenyuk, however, whose campaign staff, advertisements and message have been confused and muddled. While it is too soon to count out the former parliamentary speaker, all signs point to a two-horse race heading into the January poll. Should a second round be necessary,a prospect which is almost guaranteed, it will likely take place in early to mid February.

Wednesday, October 14, 2009

The signing of a general trade agreement on October 14 between two state owned energy companies - Russia’s Gazprom and China’s National Petroleum Corporation (CNPC)- to supply China with 68 billion cubic meters of gas yearly, not only caught many energy analysts off-guard but also made them highly skeptical.

The agreement was signed during Vladimir Putin’s first visit to China in his new role as Prime Minister.

Russian Deputy Prime Minister Igor Sechin, who is also the chairman of the board of Rosneft, Russia’s largest producer of crude oil, said Gazprom and CNPC might set a price (for the gas) in the course of further talks and sign a contract in early 2010. In that event, supplies would likely start in 2014 or 2015.

Shipments could reach China by new pipelines or as liquefied natural gas aboard tankers, he said.

The Moscow Times, however, reported that Alexei Miller, the CEO of Gazprom, told a Russian-Chinese business forum that the price for Russian gas to China would be based on the price of oil products, the same formula used by Gazprom in its European export contracts.

Russian-Chinese gas purchase talks began in 2004 and thus far have not yielded any results. Pricing has been an ongoing issue between the two sides, but the main concern analysts have is Russia’s ability to supply 68 bcm of gas per year to China while meeting long-term commitments to European customers as well as rapidly increasing Russian domestic demand for gas.

Earlier this year, Gazprom announced that gas from the Sakhalin-1 project will not be sold to China, but diverted instead to the gas hungry Russian Far East region of Vladivostok. Gazprom is holding talks with Exxon about buying all of its gas output from Sakhalin and industry sources say the company is offering prices equal to Russia's domestic gas prices – which are far below world prices. Exxon said it is studying all options to sell gas from Sakhalin-1.

In addition to making promises to supply China, Gazprom has also stated that it wants to capture 10 percent of the U.S. gas market within the next 5 years by selling some 66 bcm of gas in the form of LNG. The plan envisions that Sakhalin-2 will supply the bulk of this LNG.

The bottom line is whether Russia is capable of building such costly pipelines as Nord Stream, South Stream and a second string of Blue Stream; while at the same developing the Yamal peninsula into a major gas producing center and finishing the Shtokman project? These projects, and others too numerous to mention, are projected to cost hundreds of billions of dollars which Russia does not have and which Western companies might not want to spend given the shaky business reputation of Gazprom and its management.

Tuesday, October 13, 2009

On October 12 Georgian President Mikheil Saakashvili convened an extended session of the National Security Council (NSC) of Georgia. Present were permanent members of the president’s main advisory board along with the representatives of the parliamentary and extra-parliamentary opposition.

Apart from the usual themes of the country’s security and the situation in the Russian occupied Georgian provinces of Abkhazia and Tskhinvali, the Georgian president held a wide-ranging discussion with the ministers and the opposition about a new proposal aimed at further liberalizing Georgia’s economy.

The discussion in the NSC was a follow-up to Saakashvili’s appeal to the parliament on October 6 to adopt the Economic Liberty Act whose major values are “freedom, equal opportunities and merit.”

Describing his new proposal, the Georgian leader said “the Liberty Act will constitutionally guarantee the principles of a liberal economy by limiting the executive branch’s powers to deviate from these norms”.

In Saakashvili’s words, the laissez-faire bill will ban any increase in the number of licenses and authorizations required for economic activity as well as the creation of new national regulatory boards. The government will no longer have shares in commercial banks or have the right to regulate prices.

But as Saakashvili emphasized, the major innovations of the new bill will be curbing the government’s involvement in the economy and a constitutional provision that “any new taxes or tax increases will only be possible through a national referendum.”

The constitutional bill will also determine the budgetary expenditures/GDP ratio, putting it at 30%, as well as the budget deficit which should not exceed 3% of GDP and the national debt which should not be more than 60% of the GDP. The new bill will also make free convertibility of the Georgian national currency, lari, a constitutional norm.

In order to achieve a broader national consensus on the proposed Liberty Act, the Georgian leader used the example of the late 19th-early 20th century Georgian statesman Ilia Chavchavadze, widely acclaimed among Georgians as the founding father of the modern Georgian state, who was a strong supporter of small government, laissez-economy and free trade.

“Liberal economy was Ilia Chavchavadze’s unfulfilled dream,” said the Georgian president, “and soon Georgia will become a country where the irreversibility of the liberal economy is guaranteed by the supreme law of the land”.

One of the major concerns of the Georgian government is the ongoing world economic crisis and its dire consequences for Georgia. Saakashvili repeated in parliament what he has already claimed many times: “It was first and foremost the Russian invasion” in August 2008 that seriously slowed down Georgia’s economic development. For several years before the war Georgia had enjoyed double digit annual increases in GDP compared to a mere two percent this year.

Nevertheless, according to the World Bank, Georgia has recently been ranked 11th in the Doing Business criteria which, in Saakashvili’s words, is “a remarkable achievement given the country’s dismal 137th position just six years ago,” before the Rose revolution.

By making Georgia “the avant-garde of liberal economic ideology” at a time when “many governments across the globe adopt more protectionist policies and close up their economies,” the government hopes to give Georgia a relative advantage over other countries and attract more foreign direct investments in its economy.

“We have our geography and we cannot simply take Georgia and place it in the heart of Europe. Not only do we live next to a ferocious neighbor, but she is already here in our small apartment, occupying two of our rooms”.

The political component of Saakashvili’s new initiative is significant. He hopes that the adoption of the “groundbreaking laissez-faire act” would not only have economic consequences but would also further distance his country from the Russian orbit. “Our natural state is liberalism and that makes us so different from the Russian state,” said Saakashvili adding, “Our tenets of freedom from corruption and freedom from the government-controlled economy and from the tyranny of bureaucracy are so different from the principles of our neighbor”.

Some non parliamentary opposition figures in Georgia, who usually ignore the extended sessions of the NSC, harshly criticized Saakahsvili’s new proposal. Zurab Nogaideli, former prime minister who now is one of the major critics of the government, called it “a farce” and predicted an imminent economic collapse.

Others, most notably those in the opposition National Forum alliance who usually chastise Saakashvili for his “anti-Georgian policies” concluded that the Economic Liberty Act “would be detrimental to Georgia”.

The opposition political alliance around Georgia’s former envoy to the UN Ambassador Irakli Alasania said that “the government’s new initiative could have dire consequences for the country” and called for a thorough analysis of Saakashvili’s proposal.

In November Georgia will mark the six-year anniversary of the Rose revolution and its declared principles of democratization, liberalization and modernization, hoping to turn Georgia from a failed state into a prosperous society. By enacting the Economic Liberty Act Saakashvili apparently wants to not only make liberalism a constitutional norm, attract foreign investments and distance the Georgian economy from Russia, but also to codify the principles of the Rose revolution.

Friday, October 9, 2009

Petro Poroshenko, one of the richest men in Ukraine, and an ally of embattled President Viktor Yushchenko, was confirmed by the Ukrainian parliament on October 9 as the country’s new foreign minister.

In the early days of the Yushchenko administration, Poroshenko headed the National Security and Defense Council. The Council, under his leadership, was often criticized for playing the role of a surrogate Council of Ministers supporting Yushchenko in his conflict with Prime Minister Yulia Tymoshenko by issuing decrees countermanding those issued by Tymoshenko.

The most visible dispute was, as is traditional in Ukrainian political life, over the transparency of gas supplies from Russia and Turkmenistan.

At this time Tymoshenko accused the Swiss-based company RosUkrEnergo of being a “criminal enterprise.”

Poroshenko, however, did not seem to attach any great significance to the investigation of RosUkrEnergo and never mentioned corruption in the gas business as a major concern. In an interview with the Internet publication Obkom, he downplayed the allegations of criminal connections to Eural Trans Gas and said that all he knew about the case was from media reports.

On 5 July,Poroshenko told Interfax that there were no significant problems in the gas business and that "the good relations between Presidents Yushchenko and Putin" would insure that all gas-related issues would be peacefully settled.

In late August 2005, Poroshenko announced that he would go to Moscow personally to negotiate with Gazprom on prices for gas and to arrange a long-term supply agreement. Although he was not a cabinet member and thus not legally empowered to negotiate on behalf of the government, Yushchenko did not interfere and Tymoshenko could not prevent him from going.

Poroshenko, who made his fortune in the chocolate business, has little, if any experience in foreign policy. Many Ukrainian analysts view his appointment as foreign minister as a ploy by Yushchenko to tone down Moscow’s criticism of his erratic foreign policy and seek whatever support he can scrounge in the back ally’s of the Russian policy making establishment.

Russia has urgently launched its second wave of privatization. On the surface this is terrific news for those who missed out on the fantastic opportunities in the Wild East during the first privatization of the early 1990s and have since lamented their fate.

This also seems to answer the question of what the Russians will think of next to fund the budget once oil prices drop again.

“We are looking to boost privatization in 2010. We face two challenges, to generate additional revenue for the federal budget and attract private investors, expecting improved management efficiency,” Russian Economic Development Minister Elvira Nabiullina told journalists on October 7 after a meeting with Vladimir Putin on privatization issues.

According to the Russian daily Vedomosti, proceeds from the sale of state property in 2010 are projected in bring in some RUB 70 bln. Slightly over $2.3 billion. (Vedomosti, Oct 7).

The state intends to sell off a 13.1% stake in Rosgosstrakh and up to 20% stake in the shipping company Sovkomflot. In addition, by the end of 2010, a tender could well be announced for a concession agreement to run Sheremetyevo airport. All in all, 450 stakes are to be put up for sale in 2010, including large stakes.

The Beauty of it, however, is in the eye of the Insider.

Thus begins the final stage of the Grand Program for the Russian Insiders’ Grand Rip-of Program, launched back in the late 1980s—converting the establishment’s monopolist political power into their private wealth and economic might. To achieve that, the establishment had to throw to the public such bones, as freedom of speech and other democratic niceties. Once the establishment passed on to the second stage of its Program—converting new riches back to political power—these bones started being withdrawn. Now, try and guess who will benefit by the second privatization wave?

Oil and natural gas won’t be privatized. Because they already belong to the top echelon of the establishment; their ownership will be eventually formalized, but at that level only.

Historically, Russians have been shockingly self sufficient. We enslaved our own people as surfs rather than going through the expense of discovering new continents, such as Africa, like the Europeans did. We robbed our own country for natural resources without bothering to conserve anything, though occasionally we ran low on supply and promptly pronounced the nearest neighbor to be a part of the Empire, or a “satellite” country. Infrequently, we even made our own inventions. For instance, a home moonshine distiller was a huge hit instantly.

Winston Churchill once noted that Russia is so rich that no matter how much you steal there is still some left. I thought that he was wrong and pretty much everything has been stolen. Now, I am just delighted to learn that apparently there is still stuff left to steal! Even if it is only for those already on the take.

First, you go out and confiscate 50% of the country. Then you realize that you have no ability to run that business. So you sell it back to the previously robbed country at a fair market price. Notably, you control the fair market price, because the market price is whatever you say.

I wonder how those ministerial meetings with Putin really work. As a popular joke put it:

Putin: “You guys think only of your fat bank accounts! It’s time we started thinking of souls!”

Ministers:“Thank you, Vladimir Vladimirovich! Say, five hundred souls per person should do fine for starters.”

Thursday, October 8, 2009

If Russian President Dmitry Medvedev was asked today to choose an appropriate city in which to hold the Commonwealth of Independent States summit, it’s a safe bet Chisinau wouldn’t be his pick. Despite protestations of good will, peace and love from both sides, there’s no escaping the fact that Russia and Moldova aren’t exactly running hand-in-hand through a field of daisies.

It all began, of course, with a pesky uprising, followed by an even peskier election that ousted the ruling Communist Party of Moldova from power. Despite often battling with Russia, particularly over its support for the separatist republic of Transnistria, Communist President Vladimir Voronin had seriously wooed Medvedev and Prime Minister Vladimir Putin recently. Voronin may have hoped that their (cautious) support would prop up his floundering regime. It didn’t.

Voronin remains in parliament, but was forced to resign as President following the success of a “liberal” coalition in the parliamentary elections and the creation of the Alliance for European Integration. It is this irritatingly named coalition government that will greet Medvedev in Chisinau, instead of the expected Communist fair-weather friend.

Even more, Medvedev will meet Moldova President Mihai Ghimpu just days after Ghimpu referred to his country and Romania as “brothers,” declaring – “We are Romanians.”

Prime Minister Vlad Filat followed on Ghimpu’s statements by announcing plans to reverse the Communist government decision to teach “integrated” history – a blend of Russian and Romania history. The country will now focus on Romanian history. If the government fulfills this proposal, Moldovan school children will learn a lot less about Russia. Filat also announced that the name of the “Moldovan” language may be changed to “Romanian,” because, “Moldovan people speak in Romanian like Americans speak in English.”

But, have no fear, Mr. Medvedev. There are already signs that these policies, as well as the plan to carefully but aggressively pursue EU integration, are causing some friction within the country.

A blog from the RFE/RL Moldovan Service, for example, criticized the focus on language. Natalia Morari asks, “Are we now going to justify every extremist who is inflaming ethnic tensions simply because he speaks Romanian? Or are we going to condemn free-thinking people espousing democratic values just because Russian is their first language?”

In the 2004 census, approximately 16% of Moldovans listed Russian as their “language of first use.” About another 8% listed another language, such as Ukrainian and Gagauz. Therefore, approximately one-quarter of the population may not be pleased with the focus on the Romanian language. It is also not entirely clear whether all members of the government coalition agree. In fact, there are ominous signs that they do not. By focusing on language and identity, the coalition just may complicate the already difficult task of forcing through vital economic reforms.

And, of course, Mr. Medvedev, you always have Transnistria. That deeply frozen conflict likely will provide Moldovan authorities much angst for many years to come, while allowing Russia to maintain its foothold at the western edge of the old Union.

So, President Medvedev, while this isn’t the Moldova you would have chosen, it’s really not as bad as it seems. And anyway, at least President Ghimpu is there. He could have avoided the summit like the Central Asian states. But that's another story.

Wednesday, October 7, 2009

Gazprom made yet another attempt to foil Ukraine’s efforts to reduce its dependency on Russian gas, and thereby weaken Moscow’s control over its neighbor.

This time, however, the pressure didn’t come directly from the Kremlin or Gazprom headquarters; rather it came via a subsidiary based in the Czech Republic called Vemex. Making matters worse, Gazprom’s attempt to dupe the Ukrainians appears to have been done with the full knowledge, acquiescence and participation of Czech government authorities.

One of the key topics of discussion was an offer put forward by the Czech delegation to allow Vemex, a Czech registered gas trading company to lease gas storage facilities in western Ukraine. Initially plans would call for storing 500 million cubic meters of gas. Later this amount could be tripled.

Apart from storing gas, Vemex also lobbied the Tymoshenko government to service and repair Ukraine’s natural gas pipeline network controlled by the Ukrainian state owned Naftogaz.

By September 21 the cat was out of the bag. Whether the information was obtained by the Tymoshenko government, the Yushchenko camp, someone with a conscience from the Czech side, or the media, someone performed elementary due diligence and discovered that Vemex is in fact a subsidiary of Gazprom and subsequently blew the whistle to the media.

Czech public records indicate the shareholders of Vemex to be the German-based ZMB GmbH, a Gazpromexport subsidiary which controls 51 percent in the Czech company.

Two opaque shell companies control the remaining 49 percent. These include the Vienna-based Centrex Europe Energy & Gas AG which holds 33 percent and the EW East-West Consult AG based in Appenzell, Switzerland which controls the remaining 16 percent.

On 21 September, the Czech news agency Mediafax citing Ukrainian media sources wrote that Gazprom via Vemex was attempting to hijack an existing agreement between Brussels and Kyiv to allow EU companies a greater role in modernising Ukraine’s gas pipeline infrastructure as part of an effort to help reduce the latter’s dependence on Gazprom.

Paradoxically this agreement was penned during a joint EU-Ukrainian summit in March on the heels of the latest Russian-Ukrainian gas row, and came at a time when the Czechs held the six month rotating EU presidency.

What is abundantly clear is that Gazprom has implemented legal loopholes to use Vemex, and subsequently the Czech government as a Trojan horse to further boost influence over Ukraine’s gas sector at the expense of legitimate EU companies.

This, according to Czech daily Lidove Noviny, could serve as an attempt to discredit the Czechs viable partners who offer promises of assistance, while in reality serving as tools of the Kremlin.

It also helps demonstrate that Russia is increasingly using the Czech Republic, which is both a member of the EU and NATO, as a forward staging ground for expanding its economic and foreign policy goals within Europe proper, but also in former ex-Soviet countries such as Ukraine.

Since 1989, Russia’s presence in the Czech Republic has diminished only on the surface. While Russian troops withdrew and bases closed, Prague and Moscow have embarked on a steady course of forging ever-closer economic and political ties particularly through the energy sector.

With respect to gas supplies the Czech Republic is 90 percent reliant on Russia. Russian oil giant Lukoil is steadily applying pressure on Prague to surrender control over state companies MERO which controls the Druzhba pipeline on Czech territory and CEPRO which manages Czech state fuel and other strategic reserves.

On the nuclear energy front, Czech President Vaclav Klaus, who has never made efforts to disguise his pro-Russian leanings, plans to officially visit Moscow in mid-October to discuss allowing the Kremlin-controlled Atomstroyexport to be awarded prime contractor status in constructing two new reactor blocs at the Temelin nuclear power station owned by the Czech state-controlled utility CEZ (the largest utility in Central and Eastern Europe).

The total value of the contract is expected to be USD-14.3-28.6 billion.

In return Atomstroyexport has promised that if selected as prime contractor it will farm out 60 percent of the work to Czech companies. Some of the companies mentioned include reactor builder Skoda JS. The only problem with this promise, however, is that Skoda JS was sold to the Russians in 2004.

Tuesday, October 6, 2009

Despite international criticism, the Kremlin continues its policy of creeping annexation of the Georgian territories of Abkhazia and Tskhinvali. On October 2nd, Russian Foreign Minister Sergei Lavrov visited the Georgian city of Sokhumi on the Black Sea coast to hold talks with “Abkhaz government officials.” The Russian foreign ministry’s official website reported that “the Russian and Abkhaz governments” signed “an agreement on the reciprocal visa-free travel of the citizens of the Russian Federation and the Republic of Abkhazia.” The website also announced that “the agreement is aimed…at strengthening the legal basis of the Russian-Abkhaz relations and creating favorable conditions to develop and deepen humanitarian exchanges.”

A “visa-free regime” in a territory from which hundreds of thousands of Georgian citizens have been expelled from their homes throughout the 1990s, with indispensable help from the Kremlin, and in which those remaining have been forced to undergo Russian “passportization,” is tantamount to annexation.

This is being done in addition to other, no less powerful, measures aimed at full integration of Abkhazia within the Russian state. For instance, Russia recently signed a deal with “Abkhaz authorities” that would allow them to switch the Georgian telephone code system, operating until now throughout Abkhazia, “to the Russian one”.

Besides “official talks” with the “Abkhaz leadership” – who, by the way, do not only hold Russian passports themselves but are directly or indirectly appointed by the Kremlin or the Russian intelligence agencies – Lavrov also made time for a PR meeting with “professors and students of the Abkhazia State University and representatives of Abkhaz public.” During the meeting, whose minutes the Russian foreign ministry dutifully posted on its website, he tried “to make first assessments of the development of a now already fully independent Abkhazia”.

Lavrov’s major message is that- notwithstanding the fact that Russia has done a righteous job by securing “Abkhazia’s independence” through the deployment of thousands of troops, building military infrastructure and erecting fences with the rest of Georgia - there still remain those, “although in declining numbers after everyone realized the irreversibility of Russia’s recognition of South Ossetia and Abkhazia” – who “do not tolerate the reality created by Russia in the aftermath of its aggression against Georgia in August 2008 and long “to reverse history.”

Lavrov draws the major conclusion is that “unfortunately, many things are far from being well.” Lavrov once again made clear Russia’s dream that one day “the wise people of Georgia would bring to power sane leaders” who, would recognize both Georgia’s disintegration and Moscow’s imperial dominance over Tbilisi.

When answering a question about “the necessity for Abkhazia to have wider international recognition,” Lavrov ominously said, “in terms of the lives of ordinary people, the functioning of the economy…[and] the provision of security, there is no need for more recognition in addition to what the Russian Federation has already done; but the reality is that more and more countries, not only Nicaragua and Venezuela, realize the new circumstances that had been established since August 2008”.

When Vladimir Putin unilaterally introduced a visa regime with Georgia in 2001 – the only Commonwealth of Independence States (CIS) nation to fall under this kind of measure – he exponentially exempted Abkhazia and the Tskhinavli region from visa requirements out of “humanitarian considerations.” This was already a major blow to Georgia’s sovereignty and territorial integrity, which Russia at the time still officially respected, at least verbally.

In the spring of 2008, just before the invasion of Georgia, Putin established direct ties with “the Abkhaz and South Ossetian authorities,” bypassing Tbilisi’s jurisdiction. At the same time, for almost two years Moscow had been trying to amend the biannual UN Security Council resolutions on Georgia with an ill-concealed intention to remove reference to Georgia’s territorial integrity and the definition of Abkhazia as Georgian territory.

The August war itself, which Moscow waged against Tbilisi, among many other strategic objectives, sought to further Russia’s longtime policy aimed at Georgia’s disintegration. The recent introduction of a “visa-free” regime in a region which is occupied by Russian troops and whose officials either directly or indirectly are appointed by Moscow should be seen as another step in the eight-year-old policy of seeking annexation of Abkhazia, incapacitation and isolation of Georgia and, ultimately, imperial domination over the entire Caucasus region.

Nevertheless, Russia realizes that without a leadership in Tbilisi that acknowledges both territorial losses and the Kremlin’s mastership this would be virtually impossible to accomplish.

That is exactly why Lavrov tells his “compatriots” in Sokhumi that “things are far from being well” and longs for a day when “sane leaders” come to power in Georgia and “realism” is embraced by the West.

Monday, October 5, 2009

How realistic is Russian Prime Minister Vladimir Putin’s vision of turning the frozen, gas filled Yamal Peninsula into a northern Qatar – brimming with multi-billion dollar plants which turn gas into Liquefied Natural Gas (LNG) and terminals to load LNG tankers for export throughout the world?

Putin’s exuberant plans to transform Russia into a major LNG exporter in a decade – and at a cost some estimate to be close to $200 billion dollars - has taken a number of Russian energy analysts by surprise.

According to the October 5 edition of the Russian publication “Ekspert,” Alexei Miller, the CEO of Gazprom, told the recent meeting of Western energy companies with Putin and other Russian functionaries in Yamal’s Salakhard, that the world trade in LNG will double by 2020 and that Gazprom intends on capturing 25 percent of the volume – an amount slightly less than what Gazprom exports to Europe today.

The rapid change of Putin’s gas strategy can be explained by the fact that many of Gazprom’s European customers reduced their purchases of Russian gas in 2009 not only because of lowered demand, but because the price for spot LNG was significantly lower than the price of Russian pipeline gas.

The shift in emphasis of where gas from the Yamal will go and how – by pipeline to Europe or in the form of LNG to a wide assortment of buyers - is another indication that Russia today does not have a coherent gas strategy.

The European energy companies which sent their top executives to the Salakhard meeting were expecting to hear plans on how gas from the Yamal will begin to replace the rapidly depleting west Siberian gas fields and that the huge proven gas resources in the Yamal – 12 trillion cubic meters according to Putin – will eventually fill such projects as Nord Stream.

If Russia’s plans for diversification of export routes is now shifting away from the expensive Nord and South Stream projects to the vastly more expensive LNG route – the Europeans will need to invest billions of dollars into new LNG facilities. Are they prepared to both invest into the frozen Yamal and build new LNG receiving terminals? This is the question that needs to be answered.

But the most unrealistic part of the Putin LNG project is the technical barriers facing Gazprom and its future partners. Gazprom simply does not have the technical capabilities to drill deep for gas. At existing Russian gas fields, 70-85 percent of the gas is found at depths of around 700 meters. In the Yamal only 27.5 percent of the gas is found at this depth – the vast majority is located much deeper – out of reach of Gazprom’s existing technologies.

At the heart of the matter is what direction will the Putin team take – will it continue to maintain the direction of the last decade by keeping the Russian economy tied to the export of hydrocarbons or will it make an attempt to diversify Russian economic growth?

Friday, October 2, 2009

What happens, when a person offers controversial views? In a civilized country, this leads to a debate, perhaps a heated one—but a debate nonetheless. In an uncivilized country, this leads to threats and intimidation by hoodlums, enticed and directed by the authorities.

Such was the case in the USSR in the 1930s, when teenagers demanded the execution of “enemies of the people” or in the 1950s, when ordinary Soviet citizens demanded that Boris Pasternak be exiled. The same took place in Maoist China, when the Red Guard began demanding that “dogs heads” be smashed.

Today in Russia the Kremlin-run Nashi youth movement has launched a vile persecution campaign against Alexander Podrabinek, a Soviet-era dissident and a critic of the Putin/Medvedev regime.

In an article published on September 21, Podrabinek suggested that those who identify themselves as “Soviet Veterans” are the veterans of the Soviet GULAG/KGB repressive system.

In fact, it doesn’t really matter what exactly Podrabinek said. Whoever disagrees with whatever another person says is free to offer their views on the matter.

Instead, what Podrabinek got by way of a reply was “The siege of his house, offensive phone calls, direct threats and other methods from the arsenal of criminal groups. The Nashi organization willingly acknowledges that they have one goal -to force Aleksandr Podrabinek to leave Russia,” comments the journalist Vladimir Kara-Murza.

This sounds familiar to people of my generation. The young Nashi hoodlums, drunk on Kremlin freebies, don’t have such historic memories. Nor are they aware that free cheese is served only in a mouse trap; that they will go the way of their predecessors---the Soviet chekists or Maoist Red Guards---once they have done what they are needed for—the way used condoms go, to cut the long story short.

Meanwhile, the Podrabinek case simply reflects the way things are in Russia.

No one doubts the reason why Podrabinek came under attack—he has long been a gadfly to the regime. He has taken part in distributing the book “The FSB Blows Up Russia,” and he canvassed for Vladimir Bukovsky during his attempt to run for Russia’s Presidency.

The persecution campaign against Podrabinek, says Kara-Murza, crosses the Rubicon that separates “an authoritarian regime from an openly bandit-style one.”

Another commentator, Irina Pavlova argues that the Kremlin arranged this case in order “to demonstrate the growing force of the process of re-Stalinization in the country."

Podrabinek himself noted in an article published September 30, that “The situation possibly is worse than it may appear at first glance.” He had been given information from “reliable sources,” he wrote, that the orders to the Nashi originated from “quite high levels.”

Russian President Dmitri Medvedev’s vociferous spin doctors have spared no effort to present him to the world as a closet liberal, quite eager to dump the authoritarian Putin and go his own progressive way.

Some in the Western establishment are eager to embrace such a welcome notion. Don’t they always? Lenin was a Great Liberator; Stalin—a Great Vozhd; Brezhnev—basically a good fellow; Yeltsin—a Great (albeit not always sober) Reformer. Then the truth emerges which always happens to come too late.

If Medvedev is indeed a closet liberal, the closet he sits in is very deep. Not that his Senior President will ever let him out of there. Nor will Medvedev even try.

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